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Real Estate For Sale By Owner (FSBO's) |
| Buying a FSBO, a For Sale By Owner property, is not a new concept for most investors. In this article, we will give you some tips so you are prepared and can keep the gators from biting.
It does not matter if you buy a property that’s listed with an agent or is for sale by owner (FSBO), the same issues come up. But when buying directly from the owner there are a few specific things to keep in mind:
-New and sometimes seasoned investors will overpay for a FSBO.
The biggest mistake an investor makes when buying a property house that is sold by owner is overpaying for the property. Its not just the idea of comparing apples to apples that can come back at you. With a FSBO, you will need to think about what is changing in the neighborhood that aren’t readily apparent. Say developers are getting ready to build a large shopping center behind the property or any number of things that could occur that would effect the value of the property in a negative manner. The seller may not be legally obligated to share that bit of information with you. This is one of those times where if you do not know what’s going on in the area of the property, it could and most likely will hurt you.
-Investors think the seller will automatically reduce the sales price.
Yea right, investors think that because the seller is saving money on paying a commission to an agent they will reduce the sales price by the amount of the commission that is not being paid. Remember to the seller the property may be a home but for you its an investment. If you think the property is worth what you’re offering, and not what the seller wants be able to back up your reasoning with some recent sales data.
-Hidden Issues: The property with problems attached.
There are usually two reasons a seller wants to sell without an agent, and you can bet that both have to do with money: (1) the seller is not willing to pay a commission, and (2) agents the seller has talked to have informed the seller that they are trying to sell the property at a price the market will not support. The seller decides to sell by owner in order to ask the higher price( The old saying goes, " A fool and his money are soon parted."). That is what the seller is counting on. Most sellers do not take into consideration that what is taking place in the neighborhood effects the value of their property. Do your homework well. Before you decide to make an offer, think about how hard it may be to resell the property at a later date.
- Don’t under-negotiate.
Many times new investors don’t know if it’s a buyer’s market or a seller’s market. Not having that tidbit of information can sink your ship when it comes to dealing with a FSBO. Think ahead and be certain what you want out of the deal and how high will your offer price be. Remember he who mentions price first normally loses. Start below your top offer and negotiate, but never go above your established maximum offer. Do not fall in love with the property. You are not planning to live there. If you reach your max and there is no deal walk away. Don’t get so wrapped up that the seller talks you into paying more than you want or can afford.
-Get the disclosures required by law.
In Illinois sellers are required to make numerous disclosures. If dealing directly with the seller, without an agent, you must ensure that get all of the disclosures that you are entitled to by law. If you are not sure you can ask your attorney or you can hire a buyers agent that you will probably have to pay for to help you. Think of it from the stand point that if you get stuck with a money pit it will cost you hundreds of thousands of dollars but if you work with a professional to protect your interest you are saving. Cost versus consequence.
- Never give the seller your earnest money.
When you make an offer to purchase, normally a good faith deposit with your signed contract are involved. If there are no agents involved, you need to figure out who will hold the earnest money. You can contact an escrow company, title company, or the attorney for the buyer or seller to keep the funds.
- Owner’s title policy in addition to the lender’s title.
In Illinois, the buyer pays for the title insurance policy. The seller pays to have the title pulled. This is normally done by the Title Company or the sellers attorney.
- Get your documents in order.
In Illinois, real estate agents help buyers and sellers get all of their documents together so that they can be presented to the Title Company Closer or Attorney, whichever is doing the closing. If you’re trying to do this alone, you’ll want to consult with your attorney or escrow agent to make sure you haven’t forgotten anything. Worst nightmare is to show up at closing and something is wrong with the closing statement.
-Be careful which contract forms you use.
If you’re using an agent or attorney, he or she will be able to provide you with a contract and contingencies everything that protect your rights. If you think you have been to the table so many times that you can do it yourself it would be a good idea to have the closing agent to verify that you have all of the contracts and forms you need. Be careful where you get your contracts and forms from. All states are not the same and rights that you have here in Illinois may be different in other states.
-Don’t take the seller’s or anyone else's word – check it out yourself.
A big mistake an investor sometimes makes is taking the seller or the seller’s broker word for anything. You are the one spending a few hundred thousand dollars, it’s important you need to check everything yourself unless you are working with an agent or attorney. Do not give up your right to a professional home inspection and a final walk-through prior to closing. We have had deals where the day before during final walk through we found that all the things we were told had been done were not. If something doesn’t look right, spend the time to make sure your investment is not going to be your money pit. Once you close its your headache, it will get very expensive to have to take the seller into court. Do it right and protect your rights. |
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